While Rome wasn’t built in a day, a decision towards smarter credit habits may help us imagine a future where credit is our friend. Ayanda Ndimande, Strategic Business Development for Retail Credit at Sanlam, says the good news is that the help we need to get there is not just available, it’s also getting smarter!
Ndimande highlights the growing role of AI in predicting financial behaviours based on current credit patterns, which could help consumers make more informed decisions about their credit. Combining this with guidance from a credit coach, financial adviser or life coach (or all three!) can further enhance financial literacy and credit management. "Who wouldn’t want to improve their credit score?" Ndimande asks. "Better credit scores open doors to more opportunities for responsible credit use."
Ndimande adds, “Smart credit habits can save you a significant sum of money over time and support your financial health. We all need healthy habits to build a solid foundation for our financial futures.”
While many people understand this, they may not know where to start and Ndimande says a credit coach, like any other expert coach, can put people on the road to success. “Whether our coach is a human being or AI, the approach will be to help us access our score and to come up with a realistic plan to manage our money and to make well-informed decisions so that we can chase financial opportunities that are in our interests – not just in the short term, but particularly in the long-term.”
So, what better time to pause and consider our credit habits than ‘Get Smart with Credit Day’?
Here, Ndimande suggests five strategies to help guide smarter credit habits:
Understand your credit report:
A credit report is the foundation of our credit score and can influence our ability to secure loans, mortgages, and even rental agreements. By law, South Africans are entitled to one free credit report yearly. Take time to review it thoroughly and look out for inaccuracies. If you find any discrepancies, dispute them promptly. Understanding the specifics of your credit report empowers you to address issues that could negatively impact your score.
Know your credit score:
If we regularly monitor our credit scores, it will help us to understand our financial health on an ongoing basis. Apart from our ability to access one free comprehensive credit report per year, many banks and companies give us free access to credit scores, and often also support our understanding with tools that explain why a credit score is what it is. A score above 600 is generally considered good, but knowing where you stand is just the beginning. Familiarise yourself with how your score is calculated—payment history, credit utilisation, length of credit history, types of credit used, and new credit inquiries. There’s a solid formula for your score, which means there’s a “formula” to improve it as well! Ndimande says if you can practice good financial habits like paying your debt on-time, diversifying your mix of credit – showing that you can pay different kinds of debt on time – and not maxing out your credit limit each month, for example, you can immediately start to make strides on improving your score. The longer you can build up a good credit history, the better.
Create a budget and financial goals:
Creating a solid and sensible budget not only helps manage our expenses but also enables us to plan for our financial future. Track how much you earn and how much you spend to see where you can cut costs. This can help you to allocate more money to pay down expensive debt with high-interest rates. Ndimande says some people use the ‘snowball’ approach to pay off smaller debts first to free up funds to pay down the next smallest debts, and so on. Make sure you have clear financial goals, whether it’s saving for a down payment on a property or paying off credit cards within a specific timeframe. If you know where you’re headed with your finances, you can make strategic choices that to help you become more creditworthy.
Use credit responsibly:
If we want a healthy credit profile, we must use credit responsibly. So, try and keep the amount of credit you use below 30% of your available limit, because the more credit you use, the more it can negatively impact your credit score. And if you want to avoid more interest charges and late payment fees, try and pay whatever balance you owe in full each month. This habit will not only improve your score but will help you to create a positive credit history. If you know what you can afford before you apply for credit, you’re set for success. Do the homework by reviewing your bank statements and doing the math to understand what effect a monthly repayment will have on your current budget.
Know the difference between good and bad:
Good credit brings us positive results now and, in the future, whereas bad credit stretches us financially without getting us closer to our goals. Spot the difference and use credit as part of your ‘big picture’ financial plan, to move closer to your life milestones. And, before you sign for credit, always read the fine print, so you understand exactly what you’re getting into. Buying on credit hardly ever means you’re just paying the price you see. Credit costs money, so you’re likely to have to pay fees, interest rates and there will be default terms. As a borrower, you’re also often able to negotiate the terms of your credit plan. Do that if you can.
Ndimande says credit is a natural and necessary part of our financial lives. “The trick is to get smart about it and to take control to ensure credit serves our interests and our future; not the other way around. Now’s the time to build your credit confidence.”
PERSONAL FINANCE